Chapter6Valuing Inventories, Cost ofGoods Sold,and Gross ProfitGross profit and cost of goods soldThe basic concepts of inventory accountingCost of merchandise acquiredPrincipal inventory valuation methodsThe importance of gross profits
Chapter 6 Valuing Inventories, Cost of Goods Sold, and Gross Profit Gross profit and cost of goods sold The basic concepts of inventory accounting Cost of merchandise acquired Principal inventory valuation methods The importance of gross profits
GrossProfit and Cost ofGoods Sold
Gross Profit and Cost of Goods Sold
Gross Profit (Gross Margin)Sales revenues - Cost of goods sold= Gross profit (before operating expensesGross profit- Operating expenses=Netincome
Computing CostBalance SheetCost of inventory on hand=Number ofunits on hand x unit costStatementIncomeCost of goods sold=Number ofunits sold x unit cost
Income StatementsService CompanyMerchandising CompanyCentury2lRealEstateGeneralMotors CorporationIncome StatementIncome StatementYearEndedDecember3l,20xxYearEnded December3l,20xx$185$XXX++SalesrerenueService revenue146Cost of goods sollExpensesX39Salary expenseGrossprofitADepreciationexpenseOperating expenses:Incometax expenseSalary expenseX$Net incomeDepreciation expense空Income tax expense4$Net income
Balance SheetsService CompanyMerchandising CompanyCentury2l RealEstateGeneralMotors CorporationBance SheetBaance SheetYearEndedDecember3l,20xxYearEnded December3l.20xxCurrentassets:Currentassets:$X$XCashCashXXShort-term ivestmentsShort-term ivestmentsAccounts receivable,netAccounts receivable,etPrepaid expensesInventoryPrep aid exp enses
Accounting for InventoryGeneral Motors CorporationGeneral Motors CorporationBalatce Sheet(partal)IncomeStaement(partial)Sales revenueCurrentassets:CashXXX$40.000(2 tucks @ $20,000)Short-termCost of goodssoldXXX30.000iestments(2tucks@$15,000)XXXGrossprofit$10,000AccountsreceivableInventory(l truck$15000@$15,000)XXXPrep aid expenses
Cost of Goods Sold ModelEndingBegiminginventoryinventoryCost ofgoods$20$30availablefor saleCost of$120Purchasesgoods sold$100$90
The Basic Concepts ofInventoryAccounting
The Basic Concepts of Inventory Accounting
Inventory Accounting SystemsPeriodic systems do notkeep acontinuous record ofinventory on handPerpetual systems maintain a ruming recordto show the inventory on hand at all times